Banking on a bigger slice of pie

Bankers are recognisable by their fine threads and French cuffs. So you can imagine the shock Pie Face management got when the crew from CBA Institutional Equities showed up wearing T-shirts.

CBA was invited to pitch for a role in Pie Face’s float, along with five other brokers, about nine months ago. The first meeting, all pinstripes and ties, went well.

Even though CBA hadn’t been in equity capital markets (ECM) long, Pie Face liked their presentation and enthusiasm but they were also impressed by Patersons Securities and Bell Potter.

CBA was asked to pitch for a second and final time six months later, along with Macquarie Capital, Bell Potter, Patersons, Deutsche Bank, Ord Minnett and Wilson HTM. The new kids on the ECM block knew they needed a point of difference. So they donned the T-shirts.

But they weren’t any old rags; CBA had secretly sent someone to Pie Face head office to pick up four “Kick my arse" T-shirts, which had been released to promote Pie Face’s strongest coffee. Dressed in the black shirts, complete with Pie Face logo, the pitch worked. It was part of CBA’s strategy to show they understood the brand.

CBA was given the task of raising $10 million for Pie Face this week, before its initial public offering pencilled in for 2013.

Macquarie Capital was also on board for the raising and is working on the expected IPO. Macquarie didn’t resort to T-shirts; they had an unbreakable link at the top of Pie Face’s board and proof it could launch retail emerging companies (The Reject Shop and JB Hi-Fi were mentioned in the pitch).

Still, the fact Macquarie pitched for what is expected to be a $150 million offering proves it is a tough market for ECM bankers. The total Pie Face fee pool would not be expected to be too far north of $5 million. That’s peanuts for the top banks like Macquarie.

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Pie Face is also a case in point that relationships are still the key to winning work. While the t-shirts and other gimmicks are a nice touch, nothing beats a link on the board, or even with the chairman.Macquarie’s global head of ECM, Wayne Kent, is well known to Pie Face chair
Brian Bickmore
. The pair have worked together on a number of deals over the years. It was Bickmore’s idea to ask Macquarie Capital to pitch.

CBA also had a link. Head of investment banking David Hancock and head of ECM Jay MacGregor knew Pie Face founder Wayne Homschek from their time at Salomon together. Homschek is the former head of telcoms and media at County NatWest/Salomon Smith Barney/Citigroup.

Relationships are at the heart of the Pie Face story. A look inside Pie Face reveals a web of former Salomon bankers, all connected to Homschek.

As the story goes, Homschek and his interior designer wife Betty Fong were doodling on a serviette while dining at Hugo’s, Bondi Beach, one night when they came up with the Pie Face logo. They instantly fell for the catchy monicker, registered it as a trademark and went looking for backers.

Homschek and Fong’s first investors were former Austereo group general manager Brian Bickmore and Tribeca Learning founder Adam Davis.

Davis, who sold Tribeca to Kaplan Inc in 2006, was one of Homschek’s training mates at Sydney’s well-known, 24-hour, City Gym.

The pair first crossed paths when Homschek was pitching to float Davis’s company Worldschool, as it was then known, which was listed in 2001. Bickmore also met Homschek on the job.

Homschek, a County NatWest banker at the time, cold-called the Austereo director and offered to float his company. Homschek won a spot on the ticket and the two have been close since.

Bickmore and Davis were followed by Fat Prophets founder
Angus Geddes
, who met Homschek and Fong at a wedding in Thredbo in 2004. Homschek’s former colleague and then-County NatWest media analyst, George Colman, and retail entrepreneur
Brett Blundy
also bought in.Blundy, part-owner of market hopeful Bras N Things, called up out of the blue one day after reading about Pie Face in a newspaper.

Probably the highest profile investor signed up in 2005 after Homschek sent his former boss,
Trevor Rowe
, now chairman of Rothschild Australia, a tray of pies.

The banking veteran loved the pies, and bought the story.

That key group of investors still accounted for Pie Face’s six largest shareholders before this week’s raising. They owned about 60 per cent of the company. It is understood one cornerstone institutional manager crept up into third spot on the register this week, behind Davis and Homschek.

Other seed funders include former Salomon bankers Matthew Howison (now Emerald Partners), John Nicolis (now with Colman at Optimal Fund Management), Paul McCullagh (now a managing director at Pacific Equity Partners) and Alun Evans (now Pie Face business development manager). Former Rothschild banker Robert Crossman and another Optimal fund manager, Warwick Johnson, are also on board.

Pie Face now has 49 stores and is preparing for life as a publicly listed company.

Macquarie Capital and CBA Equities raised the $10 million “pre-IPO" funding this week and have been given the task of floating the pie-maker by the end of 2013.

It is understood the bespoke raising closed over-subscribed on Friday afternoon, with one well-regarded institution taking a big chunk of the 4 million shares on offer.

Shares were sold for $2.50 each, valuing the company at $50 million. Investors taking a look through the virtual data room were presented with blue sky financial forecasts. Earnings before interest, tax, depreciation and amortisation was tipped to be $15.9 million in 2013. If the stock listed at eight-times EBITDA that year, which one investor suggested was likely, that would imply a $127 million market capitalisation.

Those that bought in this week were hopeful it would be a “two-and-a-half bagger" (they would double their money, and then some, within two years).

For what it’s worth, it is understood Wilson HTM narrowly missed a spot on the Pie Face ticket. The client liked what the broker had done with Retail Food Group, operator of Donut King and Michel’s Patisserie stores.

It’s understood Bell Potter and Patersons could not match Macquarie and CBA on valuation grounds, while Ord Minnett did not pitch in round two and Deutsche Bank were only lukewarm to the idea. (Homschek and Deutsche’s head of ECM, Michael Richardson, are former colleagues at Salomon).

It is also understood Pie Face came very close to selling a stake to private equity in 2007. Apparently one fund was convinced Pie Face was a good buy, but its US head office wouldn’t sign the cheque.